November 13, 2014 / 2:00 PM / 6 years ago

Wells Fargo to sell $8.5 billion of federal student loans to Navient

The logo on a Wells Fargo bank building is seen in downtown San Diego, California March 18, 2014. REUTERS/Mike Blake

(Reuters) - Wells Fargo & Co (WFC.N) said it would sell government-guaranteed student loans worth $8.5 billion to Navient Corp (NAVI.O), one of the largest U.S. loan servicing and asset recovery companies.

The bank said the sale would help it focus more on its private student lending business.

Lenders have been facing pressure from regulators to offer more flexible repayment terms on student loans after the government started lending directly to students since mid-2010.

Since the government’s move, Wells Fargo has not issued federal student loans since June 2010.

JPMorgan Chase & Co (JPM.N) decided to exit student loan business in September 2013, saying competition from federal government programs and increased regulatory scrutiny had limited its ability to expand the business.

Student loan servicers, such as Navient, Great Lakes Educational Loan Services and Nelnet Inc (NNI.N), accept borrowers’ payments and help those facing financial setbacks to enroll in alternative payment programs and get deferments or forbearance.

But the industry was in the news earlier this month after a government agency found that one or more student loan servicers had charged illegal late fees, inflated minimum payment requirements and made illegal debt collection calls.

Navient, a former unit of Sallie Mae (SLM.O), said on Thursday it would finance the purchase in part by a new asset-backed commercial paper facility arranged by Wells Fargo Bank.

The deal is expected to close by the end of the year.

Reporting by Avik Das in Bangalore; Editing by Joyjeet Das and Saumyadeb Chakrabarty

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